This is an attempt to answer common questions about bankruptcy. In providing this information I have assumed the reader has a limited knowledge of bankruptcy laws and procedures. Also, since I practice in Southwest Florida, the information provided may not apply to jurisdictions outside the State of Florida. I have tried to keep answers to these questions as short and simple as possible. However, short simple answers may not apply in all cases.

NOTHING YOU SEE HERE IS MEANT AS A SUBSTITUTE FOR LEGAL ADVICE FROM AN EXPERIENCED BANKRUPTCY ATTORNEY. IF YOU ARE CONSIDERING A BANKRUPTCY FILING YOU ARE STRONGLY ADVISED TO SEEK THE ASSISTANCE OF COMPETENT COUNSEL.

What is bankruptcy and what does it do ?

The primary purpose of bankruptcy law is to provide an honest debtor with a fresh start

by relieving the burden of indebtedness so that the debtor (the person who files for bankruptcy), receives a new opportunity in life. To put it a little differently, a bankruptcy discharge prevents creditors from enforcing their claims and, in effect, cancels or forgives these debts. A bankruptcy filing can stop foreclosure lawsuits, collection lawsuits, foreclosure sales, sheriff sales, repossessions or garnishments, post-judgment collection proceedings, depositions in aid of execution, and more. It will stop harassing phone calls and letters. It can allow a debtor to bring unpaid mortgage payments current and to save a home that might otherwise be lost in foreclosure. For those who find themselves vulnerable and overwhelmed by financial distress, it is a powerful tool to level the playing field.

What does it cost?

There are several types of bankruptcy, called Chapters, which can be filed depending on the debtor and the debtor’s situation. However, this office only handles Chapter 7 and Chapter 13 bankruptcies. Any fees paid to an attorney in a bankruptcy must be disclosed to, and approved by, the bankruptcy court. At this time, fees of less than $1,500 in a consumer Chapter 7 bankruptcy case and of less than $3,750 (or $4,100 in longer cases) in Chapter 13 cases are routinely approved by the courts. In addition to attorney fees, the debtor must pay filing fees of $335 and $310 in Chapter 7 and Chapter 13 filings, respectively.

Can I pay in installments?

Yes. Generally, I require $500 to start. The balance of fees and costs must be paid in full before the Chapter 7 case is actually filed. In a Chapter 13, a portion of the attorney’s fee, and all of the costs, must be paid before filing. However, the remainder may be paid after filing, as part of the bankruptcy plan. More about that latter.

Are all my debts discharged or canceled ?

No, not necessarily. If you intend to keep property with a lien or mortgage on it, for instance, your car or house, you must continue to make the payments during and after the bankruptcy. Also, certain debts are not dischargeable, for instance, child support, alimony, and for all practical purposes, student loans. Income taxes can only be discharged in certain circumstances. Some taxes cannot be discharged at all. It is important to note, some debts that can be discharged in a Chapter 13 cannot be discharged in a Chapter 7. However, credit card bills, money judgments, deficiency claims, medical bills and unpaid personal loans can all be discharged.

Can I keep my home and car?

If you want to, yes. This is how it works. In Florida, the property you get to keep (called exempt property) is determined by State law. For most people the most important exemptions are your home if you own it (but remember you need to pay your mortgage), $1,000 value in a car (but just one car), $1,000 worth of other personal property, and your retirement or pension plan. If you do not own a house, you can receive an enhanced personal property exemption of up to $4,000. These exemptions are for each debtor, so if a married couple is filing, each spouse can claim his or her own exemptions for his or her own property.

What if I have property worth more than this? Can I still keep it?

Yes, but it comes with a price tag. Essentially, property that you own over the allowed amounts belongs to your creditors. It is the portion of the bankruptcy estate (meaning essentially everything you own when you choose to file bankruptcy) from which your creditors are entitled to recover at least a portion of what is owed to them (this is your non-exempt property or overage). You can keep all your property in a Chapter 13 bankruptcy. This is because the trustee receives monthly payments from you instead of the non-exempt property. In a Chapter 7, if you wish to keep your non-exempt property, you must repurchase it from the Chapter 7 trustee. Generally, he or she will allow you up to one year to do so. If you choose not to repurchase it, the property is turned over to the Chapter 7 trustee and sold. In all cases the proceeds are then distributed to your creditors.

What about a house or car that I still owe money on, what are my options?

If you do not want to keep property you owe money on, you can surrender it to the creditor and any balance due will be discharged as part of the bankruptcy process. Creditors who hold liens on cars or mortgages on houses are called secured creditors. In bankruptcy they have a protected status and are entitled to receive either their contractual payments (ie house payments or car payments) or the return of the secured property itself. One or the other, but not both. Conversely, if you wish to keep secured property, you must agree to continue to make the payments, or if you have fallen behind on your payments, to continue payments and cure the arrearage in a Chapter 13 plan.

So...what are Chapter 13 and Chapter 7 bankruptcies and which is best for me?

There are several types of bankruptcies. Chapter 7 and Chapter 13 are the most commonly filed and the most appropriate for most individuals. This discussion is limited to these two types of bankruptcies. A Chapter 7 bankruptcy is a liquidation (as in selling) process. The Chapter 7 filer discloses all of his or her assets, estimates their fair market value, asserts the appropriate exemptions on the assets he or she can keep, and the rest is either sold by the trustee at a bankruptcy auction or repurchased by the debtor. Attorney fees for Chapter 7s are lower than the 13s and the process is much easier and faster. It is generally the easiest and fastest of the bankruptcies. However, individuals whose income exceeds certain limits may not be able to file a 7, and those filers who wish to keep a house or car, and who are not current in their monthly payments, must file a Chapter 13. A Chapter 13 bankruptcy is a debt adjustment process. A debtor’s property is not liquidated and instead he or she pays a monthly payment to the trustee for no less than 36 months and no more than 60 months. The amount and duration of the payments are initially determined by the debtor’s attorney in the Chapter 13 plan submitted at the time of filing. The first payment is due 30 days after filing and continue monthly until the plan is paid in full. The plan is reviewed and approved or revised by the bankruptcy trustee and ultimately, by the bankruptcy court. The exact amount paid will vary from filer to filer depending on that person’s income and fixed expenses. Generally, there are four things to keep in mind. First, the amount paid must equal or exceed the amounts that filer’s creditors would receive in a Chapter 7 bankruptcy. Second, Debtors with higher incomes must have 5 year plans and are likely to have higher payments. Third, the amount you pay is not necessarily a 100% of what you owe. If your plan is consistent with the bankruptcy rules and code, it will be approved, even if creditors receive only a fraction of what they are owed. Fourth, you cannot be required to pay creditors who do not file claims. This means your payments may be less than you anticipated because not all creditors file claims in a timely manner.

Do I need a lawyer?

There is no requirement that you have a lawyer to file a bankruptcy. You have a right to do your own bankruptcy filing. However, a bankruptcy filing is a serious matter. It is a Federal District Court matter. You are expected to know and follow the appropriate rules and procedures. The forms and procedures can be confusing and failure to follow them can have serious repercussions. You can lose property you could have otherwise kept because of an innocent mistake or inadvertent error. Attorneys are paid professionals who know what is important, can anticipate potential problems, and guide you through what is often a complicated legal process that can have a drastic impact on your life. So the answer to the question is yes, you do need a lawyer. If that is unclear, let me put it another way, yes, you do need a lawyer.

So what gets filed, where, and how?

Filings occur electronically, with the Bankruptcy court in Tampa. You must file a petition and schedules, statement of financial affairs, as well as statement of intentions or bankruptcy plan. Your schedules disclose to the bankruptcy court all of your assets, all of your liabilities (debts), your income and expenses, as well as codebtors and counterparties who might be affected by your filing. The statement of affairs provides background disclosure of income and transfers of your property previous to the bankruptcy filing. All this is under oath, the bankruptcy court is very strict, the disclosures must be truthful and complete. These schedules and statements are prepared by your attorney from information provided by you. You will also need to provide copies of current pay stubs or advises, copies of bank statements and income tax returns (for those who are required to file them). If income is from self employment, a profit and loss statement or other information concerning monthly income and expenses will be required.

And then what happens?

Several things, but the most important to the filer is the issuance of a court order (called the automatic stay) to all creditors listed in the filing. This stay prevents creditors or other parties from collecting money from the debtor. It is the means by which the court prevents seizures of the debtor’s property or unauthorized contact by creditors after the filing. The court then appoints a person called a Trustee who is responsible to inquire into the debtor’s filing and be certain all pertinent matters have been properly disclosed, and where required, to collect, report and distribute for the benefit of creditors, any funds received from the debtor or from the sale of the debtor’s property. A meeting is scheduled, called a 341 meeting or creditor’s meeting, at which the debtor is placed under oath and questioned regarding matters in the filing (ie debtor’s petition and schedules). The trustee will require certain materials be produced prior to the meeting. These generally include things like pay stubs, tax returns, and bank statements. In practice, the trustee can demand whatever he or she thinks is needed to properly administer the bankruptcy estate. If a debtor does not comply, he or she may not receive a discharge. For most people, this creditor’s meeting is as close as you will come to a courtroom. In Chapter 7 bankruptcies, the trustee will contact the attorney after the meeting if there are any issues, including the turnover or repurchase of non exempt property. After the meeting, there is a 60 day waiting period for creditors to file objections. For Chapter 13 filers, there is usually a 6 month to 1 year period before the plan is confirmed by the court and, although this is important to the debtor, his or her appearance in court is generally not required. Once the Chapter 13 plan is confirmed, the debtor need only continue to make the monthly payments and comply with the other terms of the plan. Discharges are usually granted about 3 to 4 months after a Chapter 7 filing, and in a Chapter 13 filing, only after completion of the plan.

Bankruptcy, Credit Reports and Credit Scores

First, you should know that negative information can stay on your credit report for quite some time. For instance, collection accounts, foreclosures, short sales, deeds in lieu of foreclosure, and late payments may be reported for up to 7 years. Unpaid judgments and tax liens may remain indefinitely (although most credit agencies remove the judgments after 10 years and tax liens may be removed under the IRS Fresh Start program). Bankruptcies are no exception, Chapter 7 filings can remain up to 10 years and 13s up to 7 years from the filing dates.

The good news is that with the passage of time, the impact diminishes. Also, if you have recently received a bankruptcy discharge, you are now debt free (other than nondischargeable debts and debts associated with property you decided to keep). This, and because you cannot file another bankruptcy for up to 8 years, makes you attractive to some lenders. Interest rates and other terms will be onerous but credit is available.

Probably the best way to establish credit after bankruptcy is to use a mix of credit cards and installment debt (car loans or similar purchase money obligations), and at all times being punctual with your payments. Establishing good credit after bankruptcy is not much different that establishing credit before the bankruptcy. That is, by spending less that you earn, accumulating savings, making all payments on time, and by staying well within your credit limits.

Still have questions? Feel free to call me at (239)-334-7107 or email at gynburns@gmail.com

There is no charge for a phone call or initial consultation.

Nothing contained herein is intended to create or imply an attorney client relationship between the reader and the attorney supplying this information or Gregory N. Burns, PA.

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